A frequent reader of the Equity.Guru site contacted me today with some information he’d received from Supreme Pharmaceuticals (SL.C) CEO John Fowler that he thought our audience may appreciate.
I’m happy he did so. I’ve been watching some talk on messageboards and Facebook groups, and the vast majority of it has been very ‘what have you done for me lately’ on the topic of Supreme, and when, if ever, Health Canada might endow it with a sales license.
Supreme is licensed to grow, but selling is something that takes another step from Health Canada, and though others have moved to the sales license quicker than Supreme, CEO Fowler has never seemed too bothered about it because his company is worth a veritable shit-ton of money, he has $60m+ in the war chest, and the company has often said it sees itself as a B2B supplier more than a patient harvester.
Right now, Supreme is growing product and storing it in its big ass safe for future sale. And the share price has moved consistently upward over the last few years, so few bag holders haven’t paid their rent on the back of his good work. In fact, those who heeded my words when I said, a few years back when SL was at $0.16, “If you don’t think this is a value pick at these prices, I don’t even know what I can say to you,” are eating steak on the reg.
SL is a ten-bagger from those days right now, and anyone who has been in it for longer than a month is in the green. Yet, the withering masses continue to yell at Fowler for not having his sales license.
So here’s what our reader, Brent Kelland, sent to Fowler, and how the CEO responded:
- How does 7 Acres or Supreme plan to protect themselves from the potential of an LP blending tainted products into 7 Acres product post B2B sales and then blaming it on 7 Acres when they get caught?
- WE DO A FULL SPECTRUM OF TESTING BEFORE THE SALE, SO IT WOULD BE VERY EASY TO PROVE PRODUCT WAS NOT TAINTED WHEN SOLD. I DON’T THINK THIS HAS BEEN AN ISSUE WITH ANY OF THE MATTERS TO DATE.
- Has this question been brought up by Health Canada?
- NO, IN FACT HC WAS OK WITH US SELLING WITHOUT OUR OWN LAB TEST, SOMETHING WE WOULDN’T WANT TO DO IN PART FOR THE VERY ISSUE YOU RAISED.
- Given the delay for the sales permit, which appears to have come from this, what is the potential that 7 Acres will exceed their 1 year renewal without a sales permit?
- CAN I LET YOU KNOW ON THE 12TH OF MARCH?
- Has there ever been a LP denied license renewal? On what grounds?
- NOT THAT I AM AWARE OF.
- Will Supreme be putting out a news release announcing final inspection, or only when they receive their sales permit?
- WE ANNOUNCE RESULTS (I.E. LICENSING OR NEWS OF NON-LICENSING), NOT PROCESS, GIVEN THAT “STANDARD” PROCESSING TIMES ARE NOT PART OF OUR INDUSTRY YET.
For background, some have made that transition in three months, others a lot longer. Guessing HC timelines is a good way to get things wrong.
- I’m also questioning why Canada’s Island Garden was licensed 3 months after 7 Acres [for growing], yet received their sales permit [before Supreme]?
- ITS NOT A SIMPLE TIME THING, DEPENDS WHEN THE COMPANY IS READY. ITS MY UNDERSTANDING CIG BOUGHT CUTTINGS AND MOVED ASAP TO SALES SO THEY COULD FINANCE. WE INSTEAD DID PHENOTYPING TO GIVE US GOOD GENETICS FOR THE NEXT DECADE (3-ISH MONTH PROCESS) AND FOCUSED ON GROWING AS MUCH INVENTORY AS POSSIBLE VS JUST RUSHING FOR SALES. I WOULD NOT TAKE THEIR TIMING AS REFLECTIVE AT ALL ON US. GOOD COMPANY THAT I SPEAK WITH OFTEN, BUT A VERY DIFFERENT APPROACH THAN OURS.
This is an important answer and will clarify things for a lot of folks who might have thought the Supreme full sales license delay was due to nefarious goings on at 7 Acres.
What it comes down to is this: Supreme is sitting on a mid-8-figures war chest, some $60 million and change. If they had their sales license today, maybe they’d make a million bucks this quarter selling product wholesale. On a $267 million market cap, that’s a negligible impact, if any at all.
So, basically. the sales license just makes things busier, without a whole lot of bottom line impact. Sure, it’d be nice to have and would de-risk things a little, but Organigram just took a $2 million write-down on their product recall, and their share price didn’t drop in any appreciable way until class action lawsuits began forming.
I’ve said it before many times – getting a Health Canada marijuana sales license is a quick way to lose money, right now. Supreme knows that supply is quickly reducing across the industry, and that some sellers are having real trouble holding on to their patients. To accrue product and sit patiently may just increase the price they can get for that product a month or two down the line, when companies like Aurora and Canopy really feel the pinch on supply.
To that end, Abcann is moving quickly toward a public debut, and what I’m hearing from the sharp end is that company has already reduced or eliminated supply contracts for other LPs as they begin seeing their own patient numbers ratchet up. That’s going to hurt the bigger players, as Abcann’s medical product is consistent, quality, and in demand.
We’re facing a supply crunch, and quickly, and Supreme is going to be the prettiest girl at the ball when patient numbers start falling due to lack of inventory at some of the larger players, and Health Canada feels pressure to open some doors.
- Finally, is Health Canada looking at 7 Acres/Supreme with greater scrutiny because of the B2B wholesale model? Are their other considerations that this has raised?
- NO, IF ANYTHING LESS.
If you’re pissed at Supreme because you think they should move heaven and earth to be allowed to sell their product to other LPs and fix their problems, I put it to you that John Fowler has other plans, and that part of his gigantic raise recently was an effort to allow his company to stockpile without fear of keeping the lighting bill paid, as they wait for the time when they can make freaking bank filling an industry-wide need.
PS: Some six other LPs are going public in the next six months. A fully licensed Supreme could supply almost all of them.
— Chris Parry
FULL DISCLOSURE: Supreme is not an Equity.Guru marketing client and the author hasn’t owned stock since he sold that $0.16 paper in the mid-$0.80’s. But he’s beginning to get tempted..Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.